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GBP/CAD has come under pressure of late but the coming week suggests the pair will be better supported.
Recent weakness carried the conversion back down to 1.83, where a major layer of technical support is located, meaning buying interest might re-emerge.
The chart shows that this is the lower horizontal line of a solid range that GBP/CAD has occupied since March of last year:
A long-term range simply tells us where the market thinks GBP/CAD is adequately valued.
For it to break either higher or lower, a major and fundamental development must occur.
Has such a fundamental development happened, or is it about to happen? i.e. is there enough to tell us a meaningful breakdown below 1.83 is imminent? We don't think so.
The GBP had a rough time of it last week: rising political risk premium related to efforts to replace Keir Starmer as leader of the Labour Party weighed right across the sterling strip.
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However, much of that news is now absorbed by the pound, and Monday's recovery suggests that a partial retracement of those losses is possible.
We're also going to watch British economic data: jobs market figures are due Tuesday, inflation on Wednesday and PMIs on Thursday.
Last week's above-consensus GDP figure reminds us that the economy has the ability to surprise against dour expectations, so don't be surprised if this week's fare reinforces that theme.
If so, GBP/CAD can trade firmer.
Of course, dips below 1.83 are possible in the coming days, but we would anticipate them to be relatively short-lived and that the pair will ultimately recover back above 1.83.
The big downside risk for this exchange rate is if a major negative event linked to surging oil prices and the Strait of Hormuz occurs.
The market is relatively sanguine about the closure of the Strait, which doesn't look to be reopening anytime soon.
Given the CAD and USD tend to do well in times of heightened risk linked to the Middle East, GBP/CAD would come under pressure in the event of an escalation.
"North America is the most insulated. The US and Canada have large domestic production, ample inventories, and flexible refining systems," says Oxford Economics.
So big downside risks lurk in the background, but for now, it looks as though GBP/CAD can steady itself after a tough few days.
